Tracking: Hulu's Next Act

Will Hulu finally be sold? Things are certainly looking that way. Over the last few weeks everyone from Yahoo to TimeWarner has been kicking the tires of the TV and movie streaming service that’s owned by a trio of Hollywood studios—Disney, Fox, and NBCUniversal. And with increasing dissent among those studios as to what to do with Hulu, it seems like only a matter of time before a deal is worked out. Although a number of strategic options are being considered, one source told Fast Company that "Someone will buy them. The partners are motivated to be done with it."

That motivation has been there for some time—Hulu was also put on the block in 2011—and underlines the tension that has always existed between the company and its Hollywood parents. Even as the service has thrived, building up an audience of over 4 million subscribers to its Hulu Plus service and generating nearly $700 million in revenue in 2012, Hulu’s corporate owners have seen it as a threat to their core businesses. Seven hundred million is impressive, sure, but the tens of billions of dollars that Fox et al. pull in cable subscriptions and TV ad dollars is even more so. In a feature about Hulu that I wrote last year about the company I delved into that tension and how it played out—basically a simmering, years-long battle between former Hulu CEO Jason Kilar and the Hollywood suits, the ones from Fox in particular. It was the hot-headed, digital entrepreneur who (as Hollywood saw it) wanted the studios’ content for free versus stodgy, network traditionalists who were clinging to dying models.

With Kilar gone, Hulu is without its Napoleon. A sale seems the likeliest exit strategy. Though given Hulu’s roller-coaster history (an IPO was explored then scrapped back in 2010), and the partners’ discomfort over committing to long-term licensing deals for their content (which is why the former sale talks broke down), whatever happens, there’s sure to be drama.

Just months before, he sold his stake in the company, reportedly netting $40 million. But more importantly, tension between he and Hulu’s owners had reached a breaking point. There was talk of adding more ads to the service and pulling back on content. And with Providence Equity out of the picture—the firm sold its 10% stake last fall—Kilar lost a major ally at the board level. To replace Kilar, Andy Forssell, a popular Kilar lieutenant who oversaw content, was selected as an interim replacement. Here are excerpts from an interview I did with Forssell last summer.

In late March, chatter of a Hulu sale started heating up.
First Ross Levinsohn of Guggenheim Partners showed interest, and then, a few days later, Peter Chernin made a $500 million bid for the company. Amazon was said to also be kicking the tires. The moves were a kind of deja vu. When Levinsohn was running Yahoo, he’d looked into buying Hulu, and Chernin was Hulu’s patron saint back when he was at News Corp. He was the most dogmatic about using Hulu to combat piracy, and he eased the way for Kilar to make content deals with the networks. When network ad sales folks argued that they were competing against Hulu with advertisers, Chernin swatted them down. Today Chernin is perhaps less bullish than he was about Hulu—his $500 million bid is not quite the $2 billion that Hulu was valued at back in 2011.

In early May, All Things D reported that Marissa Mayer had met with top execs at Hulu to discuss a possible sale, but had not made a formal bid. As the report noted: "Video is a key component of Yahoo’s strategy going forward. Along with mobile efforts, Mayer has explicitly told investors that video was a key to the company under her tenure." Yahoo has also been on a buying spree of late, gobbling up Loki Studios and MileWise and now expressing interest in Tumblr.

In mid-May two pay TV operators, including Time Warner, began circling Hulu, according to the Wall Street Journal.
Unclear is whether Time Warner (the other company was not named) wants to outright buy Hulu or purchase a minority stake. Though sources told the Journal that the offer being discussed was not in line with Hulu’s current valuation, so the cabler is at this point an unlikely winner. Strategically, the move makes sense as more and more cable companies pursue a "TV Everywhere" approach, making online content available exclusively to their cable subscribers. As with all the discussions with Hulu, however, most tantamount is how willing Hulu’s corporate parents are to make long-term commitment deals with their content.

Bloomberg Businessweek reports that, "Discussions are at an early stage and it’s uncertain if the company would want to buy all of Hulu or just a portion," according to unnamed sources that Businessweek says have knowledge of the matter.

The horse race to buy Hulu ratcheted up a notch on Friday when Yahoo made a formal bid to acquire the streaming TV and movie service, according to AllThingsD. This comes on the heels of Yahoo's record-breaking $1.1 billion purchase of Tumblr and a recent meeting between Marissa Mayer and Hulu execs. Also in Who's Buying Hulu news: Amazon has pulled out of the race. While Silver Lake, in partnership with the Hollywood agency William Morris Endeavor, has jumped in, along with KKR &Co, says Bloomberg. For WME, Hulu would be another digital asset for an agency that is aggressively building up its tech portfolio as a way to leverage its talent. WME also has stakes in Uber and TheAudience.

The question, as always, is just how much content whoever buys Hulu will wind up with, given that Hulu's Hollywood owners—Disney, News Corp. and Comcast—have historically been loathe to sign long-term license deals for their content. Or is it? According to one Hollywood tech source,
even without its studio movies and TV shows, Hulu is valuable. Someone like Peter Chernin, whose Chernin Group put forth a $500 million bid for Hulu in April, could use the platform to stream content from Fullscreen, the mega YouTube network that Chernin is an investor in. "It's not what Hulu is," this person said, "It's what you put on Hulu."